Some predictions, when they turn out to be inaccurate, are cause for cheer. So it is with the World Bank’s forecast that Covid would deal a hard blow to India as the top receiver of global remittances. In 2020, the Bank surmised that the global recession and job losses caused by Covid would deal a hard hit to global remittances. It predicted that with Covid and economic turmoil in Gulf Co-operation Council (GCC) economies, India would see remittances decline by 23 per cent in 2020. But in its latest monthly bulletin, Reserve Bank of India (RBI) has presented a detailed survey to show that India’s inward remittances slipped just 0.2 per cent in 2020 and expanded 8 per cent in 2021, sustaining at over $83 billion. Its findings offer plausible reasons for this resilient performance.
As infections spread during Covid’s first wave, countries that imposed stringent lock-downs saw their low and medium skilled migrant labour worst hit, triggering a decline in their remittances. In fact, deteriorating economic conditions in GCC saw part of the migrant workforce return permanently to resettle in India. But advanced economies, which imposed fewer mobility restrictions and rolled out stimulus packages, saw a pickup in outward remittances. Countries with high infection rates received a higher share of these flows, as their diaspora sent money back home to support families in adversity. Both these trends played out in favour of India, which saw remittances rebounding in 2021 after dipping briefly in 2020. While some of the remittances that India attracted during Covid were likely one-off (towards medical expenses), there seem to be structural factors that are aiding remittances into India too. For one, there is a shift in the origin of flows into India, with the GCC region’s share falling from 50 per cent in FY17 to 30 per cent in FY21, even as advanced economies have seen their share climb to 36 per cent. US at 23 per cent now accounts for a higher share of India’s remittances than UAE (18 per cent), while UK and Singapore contribute more than Saudi Arabia and Kuwait. This shift reflects structural changes in emigration. For over a decade now, more Indian parents have been funding Western degrees for their wards, while low-skilled GCC jobs with their short-term contracts have found less favour with India’s workforce. India’s remittance flows are now originating more from white-collar workers in the advanced economies rather than from blue-collar ones in the GCC region. This obviously augurs well for both the stability of these flows and their resilience to economic upheavals.
Overall, these changes suggest that remittances into India are no longer a fair-weather friend and can be relied upon to bolster the economy and shore up the Rupee, during times of domestic distress. Given the changing nature of remittances, RBI and banks must devise more NRI friendly products that can attract investments along with social support payments. All efforts must be taken on the technology front to make inward remittances a friction-free process. Policymakers fretting over rising LRS (Liberalised Remittance Scheme) outflows, must take note that investments in overseas education are a productive expense and have long-term paybacks for the country in terms of qualified and affluent folks of Indian origin supporting their families back home.